Time allowed for completion of this assessment
• This assessment should take approximately 3 hour(s) to complete. You may take longer to complete it if you wish to.
• You have a window of 24 hours from release to submission to complete it.
• In addition to answering/responding to the questions/requirements, this 24-hour period provides enough time for you to prepare your document for submission (including, as appropriate, copying, pasting, saving electronically) and loading to Moodle.
• If you have a SORA which allows for additional writing time for examinations/tests, this has been factored into the 24- hour window and no additional time in addition to the 24- hour period is available.
Word count/number of pages – maximum
No specified limit
Determining word count impacted by Turnitin
• After submission to Turnitin, the Turnitin recorded word count is usually higher than the word count in a Word document.
• Where the assessment brief specifies a maximum word count, on the front cover of your submission record the number of words as recorded in your Word document.
• It is the Word document word count which will be taken account of in marking, NOT the Turnitin word count.
Footnotes, appendices, tables, figures, diagrams, charts included in/excluded from word count/page length?
Not applicable
Bibliographies, reference lists included in/excluded from word count?
Not applicable
Penalty for exceeding specified word count/page length?
• Where there is a specified word count/page length and this is exceeded, yes there is a penalty: 10 percentage points deduction, capped at 40% for Levels 4,5, 6, and 50% for Level 7. Refer to Academic Manual Section 3: Module Assessment – 3.13 Word Counts.
• Where there is no specified word count/page length no penalty applies.
Requirements for/use of references
• This assessment is an ‘open book’ exam/test which you attempt at home, at UCL, or indeed in any other location. It is not invigilated. In principle it should take no longer than the time specified above to complete. However, you have a 24- hour timed window in which to download the assessment, to complete it, and to submit it to Moodle.
• In responding to the demands of this assessment, you may draw upon course materials – lecture slides, notes, handouts, readings, textbook(s) – you engaged with in your studying of this module.
• You are not expected or required to find and use new materials. In a formal ‘sit-down’ invigilated exam/test you would not be able to find and draw upon new materials – you would draw upon what you learned from your studying of the module.
• You may refer to such course materials but you should not be copying word for word from lecture slides, notes, handouts, readings, textbook(s) you engaged with in your studying of this module.
• You should capture, articulate and communicate your views, thoughts and learning in your own words.
• If you do provide quotes from any lecture slides, notes, handouts, readings, textbook(s) you should cite them and provide references in the usual way.
• Be aware that a number of academic misconduct checks, including the use of Turnitin, are available to your module leader.
• If required/where appropriate UCL Academic Misconduct penalties may be applied (see immediately below).
Academic misconduct (including plagiarism)
• Academic integrity is paramount.
• It is expected that your submission and content will be your own work with no academic misconduct.
• Academic Misconduct is defined as any action or attempted action, including collusion with other students, that may result in a student obtaining an unfair academic advantage. There are severe penalties for Academic Misconduct, including, where appropriate and required, exclusion from UCL.
• Refer to Academic Manual Section 9: Student Academic Misconduct Procedure – 9.2 Definitions.
Submission date 23rd March, 2021
Submission time 10:00 am GMT
Penalty for late submission?
Late submissions are not permitted
Submitting your assignment
The assignment MUST be submitted to the module submission link
located within this module’s Moodle ‘Assessment’ section by the
specified deadline.
Anonymity of identity. Normally, all submissions are anonymous unless the nature of the
• Anonymity is required.
• Your name should NOT appear anywhere on your submission.
submission is such that anonymity is not appropriate, illustratively as in presentations or where minutes of group meetings are required as part of a group work submission
Return and status of marked assignments
• At the latest this will be within 4 weeks from the date
of submission as per UCL guidelines, but we will
endeavour to return it earlier than this.
• Assessments are subject to appropriate double
marking/scrutiny, and internal quality inspection by
a nominated School of Management internal
assessor. All results when first published are
provisional until confirmed by the relevant External
Examiner and the Examination Board.
• No appeals regarding your published mark are
available until after confirmation by that
Examination Board. UCL regulations specify that
academic judgment applied within the marking
process cannot be challenged.
Academic Support with this Assessment
Given the nature of this assessment, during the 24-hour window no questions should be directed to
the Module Leader/Module Team. If you have doubts about wording or requirements etc., state your
assumptions. If they are appropriate they will be taken into consideration in marking.
Uploading your submission
• Unless specifically instructed otherwise in the assessment document, please upload your
work as a single file via the submission link on Moodle.
o Wherever possible you should type/use Excel for (as appropriate) your answers and
follow instructions later in this assessment document.
o If you do have to include any elements that are not typed/computer generated (e.g.
figures, diagrams, equations etc.), or you are unable to type your answers for any
reason, please follow the advice for submitting handwritten answers for any
submission that requires scanning documents (the webpage refers to 24-hour timed
exams but is applicable to all online submissions including this one).
o If for any reason you are not able to use the app recommended by ISD at the link
above, you can consult the following resources for advice about preparing your
submission:
? Submitting handwritten assignments to Moodle using mobile or tablet Devices
– Device Camera
? Submitting handwritten assignments to Moodle using mobile or tablet devices
– MS One Drive App
• Please DOUBLE CHECK that the file you are uploading is the correct one and is complete
(with all pages visible).Resubmission will not be permitted.
Technical Problems
If you encounter difficulties downloading or submitting your assessment via Moodle, then please
immediately notify (by email) your department (Programme Administrators ONLY), explaining the
problem and including a copy of the work you are trying to submit. ONLY use this approach if you
can show that you have tried to download from/upload to Moodle and encountered technical
difficulties.
Advice and other support
Section B: Requirements
There are THREE (3) sections to the examination paper. All three sections are independent of each
other.
Section A consists of FOUR (4) questions. This section is worth FORTY (40) marks.
Section B consists of FOUR (4) questions. This section is worth FORTY (40) marks.
Section C consists of TWO (2) questions. This section is worth TWENTY (20) marks.
Good luck!
Page 7 of 16
SECTION A
mRNATech is a large pharmaceutical firm that is working on a new vaccine against Covid 19. The
vaccine needs to be approved before it can actually be used to vaccinate people. The vaccine
development and approval process will take six months. To ensure that the vaccine is readily available
after the approval, mRNATech needs to invest one million GBP (£1,000K) in its capacity. If the vaccine
is approved, mRNATech expects to make 6% return on investment, i.e., the net profit after subtracting
the initial capacity investment is equal to sixty thousand GBP (£60K).
However, there is a 5% chance that the vaccine is not effective enough so that it will not be approved
by the government. If the vaccine is not approved, mRNATech can salvage its capacity to another
vaccine manufacturer for £500K. mRNATech has to decide whether or not to invest in the capacity
now. If it decides not to make the investment and cease the project now, it can use £1,000K to make
an alternative investment that will return £10K sure net profit.
Question 1: Evaluation of the Capacity Investment
a) Construct the decision tree for mRNATech’s decision problem. Assuming it is risk-neutral,
would you recommend mRNATech to make the capacity investment?
[6 marks]
b) Define the risk profiles associated with the optimal strategy. Taking risk into
consideration, what would be your recommendation to mRNATech? While determining your
recommendation, assume that mRNATech is a large pharmaceutical firm that considers
investing in around 1000 similar projects every year.
[4 marks]
Question 2: Value of Perfect Information
mRNATech is considering hiring DataAnalytics, an independent third party company, which would be
able to predict whether mRNATech’s vaccine will be approved or not
Suppose DataAnalytics is able to predict whether the vaccine will be approved or not with
perfect accuracy. What is the maximum that mRNATech should be willing to pay in order to
obtain this perfect information? Answer this question by constructing a decision tree.
[10 marks]
Page 8 of 16
Q3: Sensitivity Analysis
Figure 1 below shows the value of the perfect information as a function of the probability that
mRNATech’s vaccine fails.
Figure 1: The value of the perfect information provided by DataAnalytics against the
probability that mRNATech’s vaccine is not approved
Can you explain the shape of Figure 1? In particular i) why is the value zero when the
probability that the vaccine is not approved is 0%, ii) why does it increase from 0% to 9% and
then iii) why does it decrease for values greater than 9%? iv) When is information most
valuable?
[10 marks]
Question 4: Value of Imperfect Information
DataAnalytics charges mRNATech £15K for predicting whether the vaccine will be approved or not.
For this fee, it will conduct a detailed analysis of the vaccine and provide a recommendation to
mRNATech, either “favourable” or “unfavourable”. The probability that DataAnalytics will make a
favourable recommendation is equal to 91.75%.
Unfortunately, DataAnalytics’s recommendations can sometimes be wrong. The probability that the
vaccine will not be approved given a favourable recommendation by DataAnalytics is 1.63%. On the
other hand, the probability that the vaccine will not be approved given an unfavourable
recommendation by DataAnalytics is 42.42%.
£-
Probability that vaccine is not approved
Page 9 of 16
Given these statistics, mRNATech is wondering whether it would be worthwhile to pay £15K to
DataAnalytics to perform this analysis.
a) What is the value of imperfect information that DataAnalytics provides? Should mRNATech
hire DataAnalytics? Construct a decision tree to answer this question.
[7 marks]
b) Ignoring the cost of hiring DataAnalytics, define the risk profiles for the case when
mRNATech hires DataAnalytics. Taking into account the risk, would you recommend
mRNATech to pay £15K to hire DataAnalytics?
[3 marks]
SECTION B
In line with their corporate responsibility targets, DataAnalytics, an analytics firm, has committed to
satisfy 100% of its electricity demand using clean energy in the year 2022. They are currently in the
process of planning how to achieve this target.
In order to hedge against possible variations in the price of electricity in 2022, DataAnalytics plans to
contract solar capacity from SolarNow, a nearby solar farm, through a Corporate Power Purchase
Agreement (CPPA). SolarNow has offered two possible CPPA contracts:
• Contract A: 100 MW of capacity; DataAnalytics must purchase all the output of its contracted 100 MW of solar capacity at a price of £50/MWh.
• Contract B: 150 MW of capacity; DataAnalytics must purchase all the output of its contracted 150 MW of solar capacity at a price of £40/MWh.
However, because of variations in weather, the amount of electricity output that SolarNow’s solar
panels will produce is uncertain. In particular, every MW of capacity is projected to produce ?? MWh
of electricity per year, where ?? has a mean of 1500 MWh and a standard deviation of 120 MWh. The distribution is symmetric around its mean.
Given the current work-from-home arrangements under which DataAnalytics is operating, it is unclear
how many employees will be working from home versus in the offices in 2022. With probability 25%,
all their employees will be back in the office and the firm’s 2022 electricity demand ?? will be 210,000 MWh. With probability 75%, only half their employees will be back in the office, and the electricity
consumption ?? will be 140,000 MWh.
If DataAnalytics’ electricity demand ?? falls short of the amount of electricity delivered by the contract, they must still honour the terms of the contract and pay SolarNow the entire amount, as per the
contract terms. However, if ?? exceeds the amount of electricity delivered by the contract, they must
make up the shortfall by purchasing wind or solar energy from the spot market at a price ??/MWh.
Page 10 of 16
Expert projections suggest that ?? will be somewhere between £30/MWh and £70/MWh, with equal probability.
DataAnalytics is seeking your help to understand which of the contracts to choose, based on the total
cost to associated with each contract.
Question 5: Problem Setup and Scenario Analysis
a) For each of the contracts, write an expression for DataAnalytics’ total cost in terms of the
uncertain production, demand and spot price. [5 marks]
b) If you were to take a decision to minimize the probability that DataAnalytics must
purchase from the spot market, which contract would you choose and why?
[2 marks]
c) If you were to take a decision simply based on the expected value of the parameters,
which contract would you choose?
[5 marks]
Question 6: Choice of Distributions for Simulation
a) What distributions should be used to model each of the uncertain parameters?
[4 marks]
b) Will the total cost have a discrete or a continuous distribution? Why?
[3 marks]
Question 7: Interpreting the Simulation Output
You decide to simulate the performance of both contracts using a 10000-iteration simulation. After
performing the simulation, you obtain summary statistics of the resulting output distributions (Tables
1 and 2), and plot the associated cumulative distribution functions of the output distributions (Figure
2).
Summary Statistics